For-profit corporations lack tribal immunity

"When the sole facts are that an Indian tribe purchases all of the shares of an existing for-profit corporation and takes control over the operations of the corporation, tribal immunity is not conferred on the corporation."

Hon. Paul Lundsten Wisconsin Court of Appeals

The Wisconsin Court of Appeals held on Nov. 24 that a corporation has no tribal immunity, even though it is 100 percent owned by an Indian tribe.

In August 1990, Carley Development Company, Inc., was organized as a for-profit Wisconsin corporation. Carley’s name was changed to DJ Hosts in January 1995 by amendment to its articles of incorporation. The Ho-Chunk Nation, a federally recognized Indian tribe, purchased all of the stock in DJ Hosts approximately two months after the name change.

McNally later brought a second motion for default judgment, but before the circuit court decided McNally’s motion, DJ Hosts moved to dismiss, arguing that the Ho-Chunk Nation’s sovereign immunity barred McNally’s action against DJ Hosts.

Dane County Circuit Court Judge Stuart A. Schwartz granted the motion, and McNally appealed. The court of appeals reversed in a decision by Judge Paul Lundsten.The court began by noting that an Indian tribe’s purchase of a corporation’s stock does not normally confer tribal immunity on the corporation, stating, "We think it is self-evident that if a tribe purchases, for example, shares in Microsoft, Microsoft does not gain tribal immunity in any measure." The court also stated it is irrelevant whether the shares are publicly traded or not.

The court also found it indisputable that Ho-Chunk itself would have immunity from the suit, noting that a tribe cannot be sued in state court for breach of contract unless it waives immunity, even if it is acting as a commercial entity, rather than as a governmental unit.

What the court held

Case: McNally CPA’s & Consultants, S.C., No. 03-1159.

Issue: Does a corporation have tribal sovereign immunity, if its shares are 100 percent owned by an Indian tribe?

Holding: No. Where the tribe bought the shares in an existing, for-profit corporation, the corporation does not have tribal immunity.

Having established that the mere ownership of shares of stock is insufficient to confer immunity on a corporation, the court emphasized that it was limiting its holding to situations in which all shares of a pre-existing corporation are purchased by an Indian tribe, and held, "when the sole facts are that an Indian tribe purchases all of the shares of an existing for-profit corporation and takes control over the operations of the corporation, tribal immunity is not conferred on the corporation."

The court noted that each of the cases involved corporations that were created by a tribe in the first instance. Nevertheless, the court found those cases useful as guidance in determining when a corporation should have tribal sovereign immunity.

The court distilled the following nine non-exclusive list of factors from those three cases: (1) Whether the corporation is organized under the tribe’s laws or constitution; (2) Whether the corporation’s purposes are similar to or serve those of the tribal government; (3) Whether the corporation’s governing body is comprised mainly or solely of tribal officials; (4) Whether the tribe’s governing body has the power to dismiss corporate officers; (5) Whether the corporate entity generates its own revenue;(6) Whether a suit against the corporation will affect the tribe’s fiscal resources; (7) Whether the corporation has the power to bind or obligate the funds of the tribe; (8) Whether the corporation was established to enhance the health, education, or welfare of tribe members, a function traditionally shouldered by tribal governments; and (9) Whether the corporation is analogous to a tribal governmental agency or instead more like a commercial enterprise instituted for the purpose of generating profits for its private owners.

Applying those factors to DJ Hosts, the court concluded that it did not have immunity, and distinguished the other cases holding in favor of immunity.

In Ransom, the tribe established and funded a non-profit social services corporation for the benefit of tribe members. The Ransom court concluded that this corporation was "so closely allied with and dependent upon the tribe that it is entitled to the protection of tribal sovereign immunity." Ransom, 658 N.E.2d at 993.

The court also found that dicta in the Trudgeon case actually undercuts the corporation’s case for immunity.

In Trudgeon, the California Court of Appeals stated: "it is possible to imagine situations in which a tribal entity may engage in activities which are so far removed from tribal interests that it no longer can legitimately be seen as an extension of the tribe itself. Such an entity arguably should not be immune, notwithstanding the fact it is organized and owned by the tribe." Trudgeon, 71 Cal. App. 4th at 639.

Finding that reasoning appropriate in the case at bar, the court of appeals concluded, "Purchasing stock, even all of the stock, in an ongoing for-profit business seems to be just the sort of situation that the Trudgeon court envisioned would not confer immunity on the corporate entity. Here, we have the additional fact that the corporate entity was not created by a tribe."

Accordingly, the court held that the corporation was not immune from suit.